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RNS Number : 8466T
Tullow Oil PLC
30 March 2021
TULLOW OIL PLC
Annual report and accounts
Tullow Oil plc ("Tullow" or the "Company")
30 March 2021 - Following the release on 10 March 2021 of the
Company's preliminary full year results announcement for the year
ended 31 December 2020 (the "Preliminary Announcement"), the
Company announces it has published its Annual Report and Accounts
for this period (the "Annual Report and Accounts").
A copy of the Annual Reports and Accounts are available to view
on the Company's website: www.tullowoil.com
The Company is also pleased to announce it has published its
Sustainability Report and Climate Risk & Resilience Report,
which is also available on the Company's website: www.tullowoil.com
.
The Company's 2021 Annual General Meeting will be on a date to
be confirmed in due course.
In accordance with Disclosure Guidance and Transparency Rule
6.3.5(2)(b), additional information is set out in the appendices to
this announcement. This information is extracted in full unedited
text from the Annual Report and Accounts.
The Preliminary Announcement included a set of condensed
financial statements and a fair review of the development and
performance of the business and position of the Company and its
group.
In accordance with Listing Rule 9.6.1, a copy of the Annual
Report and Accounts have been submitted to the Financial Conduct
Authority via the National Storage Mechanism and will be available
for viewing shortly at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
In addition, all of the above documents have been submitted to
Euronext Dublin and the Ghana Stock Exchange, and therefore will
shortly be available for inspection at Euronext Dublin (Exchange
Buildings, Foster Place, Dublin 2) and will be available to
shareholders located in Ghana by contacting the Company's
registrar: Central Securities Depository (GH) Limited, 4th Floor,
Cedi House, PMB CT 465 Cantonments, Accra, Ghana (Telephone: +233
(0)302 906 576).
CONTACTS
=========================================== ===================
Tullow Oil plc Murrays
(London) (Dublin)
(+44 20 3249 9000) (+353 1 498 0300)
George Cazenove (Media) Pat Walsh
Matthew Evans and Chris Perry (Investors) Joe Heron
=========================================== ===================
Notes to editors
Tullow is an independent oil & gas, exploration and
production group which is quoted on the London, Irish and Ghanaian
stock exchanges (symbol: TLW) and is a constituent of the FTSE250
index. The Group has interests in over 50 exploration and
production licences across 11 countries including Ghana where it
operates the Jubilee and TEN fields. In March 2021, Tullow
committed to becoming Net Zero on its Scope 1 and 2 emissions by
2030.
Follow Tullow on:
Twitter: www.twitter.com/TullowOilplc
YouTube: www.youtube.com/TullowOilplc
Facebook: www.facebook.com/TullowOilplc
LinkedIn: www.linkedin.com/company/Tullow-Oil
Appendices
Appendix A : Directors' responsibility statement
The following directors' responsibility statement is extracted
from the Annual Report and Accounts (page 79).
Directors' responsibility statement required by DTR 4.1.12R
The Directors confirm, to the best of their knowledge:
- that the consolidated Financial Statements, prepared in
accordance with International Accounting Standards in conformity
with the requirements of the Companies Act 2006 and IFRSs adopted
pursuant to Regulation (EC) No.1606/2002 as it applies in the
European Union, give a true and fair view of the assets,
liabilities, financial position and profit of the Parent Company
and undertakings included in the consolidation taken as a
whole;
- that the Annual Report, including the Strategic Report,
includes a fair review of the development and performance of the
business and the position of the Company and undertakings included
in the consolidation taken as a whole, together with a description
of the principal risks and uncertainties that they face; and
- that they consider the Annual Report, taken as a whole, is
fair, balanced and understandable and provides the information
necessary for shareholders to assess the Company's position,
performance, business model and strategy.
By order of the Board
Rahul Dhir Les Wood
Chief Executive Chair Chief Financial Officer
9 March 2021 9 March 2021
Appendix B: A description of the principal risks and uncertainties that the Company faces
The following description of the principal risks and
uncertainties that the Company faces is extracted from the Annual
Report and Accounts (pages 31 to 35).
Risk appetite
The Board sets Tullow's risk appetite and acceptable risk
tolerance levels for each of the principal risk categories. In
considering Tullow's risk appetite, the Board reviewed the risk
process, the assessment of enterprise level risks and the existing
controls and mitigating actions that drive towards residual risk.
During this process, the Board articulated which risks Tullow
should not tolerate, which should be managed to an acceptable level
and which should be accepted in order to deliver our business
strategy.
The risk appetite is reviewed at least annually by the Board to
ensure that it reflects the current external and market conditions.
The Board last reviewed the risk appetites in February 2020. The
Senior Leadership Team reviewed the risk appetite statements in
February 2021 against the revised principal risks and the Board
will next review the risk appetite statements in March 2021.
Internal control
A foundation of effective governance, risk management and
control has been established throughout the organisation. Core to
this is our Integrated Management System (IMS) which sets out all
mandatory policies, standards and controls necessary to manage our
activities and associated risks. The effectiveness of the internal
control framework is reviewed through the risk management process
and challenged as described above. In addition to this, the Senior
Leadership Team and Audit Committee perform an annual review of the
effectiveness of internal control.
Nature of assurance
-- Assurance activities are put in place across the three lines
of defence to assure against key risks. These specifically focus on
areas where there are internal/external changes, control failures
and historical issues.
-- Business leadership acts as the first line of defence and is
responsible for ensuring their key risks are being managed
effectively and that adequate controls are in place to manage those
risks.
-- Group oversight acts as a second line of defence and as well
as setting functional standards is responsible for ensuring
compliance with them. They obtain assurance through periodic
reporting and focused assurance reviews. They are also responsible
for identifying and managing risks that fall under their remit.
Given the change in business structure and reporting lines the
assurance provided over the second line of defence is currently
under review.
-- Internal Audit acts as the third line of defence and is
responsible for providing independent assurance through its
risk-based internal audit programme. The Internal Audit Plan and
outputs are reviewed by the Audit Committee. Agreed actions for
improving the control environment and managing risk are owned by
assigned individuals and monitored through Tullow's performance
review process. The Audit Committee monitors the implementation for
recommendations arising.
-- Tullow's risk management and assurance processes provide the
Board and the Management Team with reasonable, but not absolute,
assurance that our assets and reputation are protected.
Evolution of Tullow's management of risk and control
Organisational and strategic changes made throughout the year
have redefined ownership and point of decision making across the
business. The changes aimed to promote accountability and challenge
at a senior level and remove the need for multiple layers of review
as Tullow becomes a more agile business.
During 2020 the risk management and control framework has been
evolved to align to the new ways of working and this will continue
to evolve into 2021. Although the controls have been in place to
mitigate key risks throughout 2020 the nature of these controls has
changed and the business has launched a programme of transformation
to review key processes and the IMS to make sure it continues to be
fit-for-purpose for the new business structure.
The risk framework has been realigned to the new business
reporting lines and senior risk owners have been identified to
ensure that a greater culture of risk awareness and challenge is
instilled throughout the business with an increased focus on
mitigating actions. This will continue into 2021 including updating
the accountability framework and reviewing the assurance processes
in place over the newly defined key controls.
Tullow's risk profile
The Company risk profile has been closely monitored throughout
the year, with consideration given to the risks to delivering the
Business Plan as well as whether the COVID-19 pandemic or oil price
volatility resulted in any new risks or changes to existing risks.
Risks associated with COVID-19 have been considered and managed
across all principal risk categories.
Strategy risk Link to 2021 scorecard - Business Plan Implementation
------------------------------------------------------------------------------------------------------------------------------
Risk of failure to deliver operations,
development and subsurface objectives Risk owner: Rahul Dhir
----------------------------------------------------------- -----------------------------------------------------------------
Risk details Risk mitigations
----------------------------------------------------------- -----------------------------------------------------------------
Tullow has developed a Business Plan
to deliver material value and * Well defined and integrated plan to deliver the
cash flow. This will help Tullow necessary inputs needed to achieve Business Plan
reduce leverage and create value objectives
for
our shareholders. The success of
the plan is reliant on delivery of * Clear KPIs and accountability defined
clear targets and disciplined allocation
of capital and our human
resources. Failure to achieve the * Ongoing business performance review process to
objectives will impair value and monitor performance
loss
of shareholder confidence and support.
Key execution risks not * Large portfolio of high-return drilling and
addressed elsewhere include: investment opportunities defined with JV support in
* Lack of ability to increase oil production and Ghana and across non-operated assets
replenish our resource base will reduce our ability
to deliver value and cash flow and could ultimately
impair our ability to reduce leverage * Improvements in facilities' reliability through
targeted interventions
* Operational and subsurface challenges prevent us from
achieving our planned oil production * Simplified well design and reduced completion
complexity
* Ghana gas market constraints reduce our planned gas
offtake which would impact oil production and our * Integrated planning across subsurface, drilling and
ability to reduce flaring projects teams
* Unable to progress the preparation of FDP in Kenya * Alignment with Government of Ghana on gas offtake for
and therefore any exercise to unlock Kenyan potential 2021 with longer term negotiations under way
* Inability to unlock the potential in emerging basins * Active engagement with JV and Government of Kenya to
may reduce value creation opportunities progress preparation of FDP in Kenya
* High concentration risk in Ghana and Gabon * Exploration plan in place for emerging basins,
particularly Argentina, Guyana and Suriname
----------------------------------------------------------- -----------------------------------------------------------------
Risk of failure to deliver commercially
attractive projects and operations
due to sustained low oil price Risk owner: Les Wood
----------------------------------------------------------- -----------------------------------------------------------------
Risk details Risk mitigations
----------------------------------------------------------- -----------------------------------------------------------------
The nature of the industry within
which we operate means the * Cost base reduced substantially to be viable in a
volatility of oil price is always lower oil price environment
a risk that Tullow remains exposed
to.
* Prolonged low oil price and increased volatility * 60 per cent of 2021 oil entitlement hedged at an
would lead to a decrease in asset values and reduced average floor price of $48/bbl.
access to funding
* Proven, tested and successful business continuity
process and plans in place for managing COVID-19
----------------------------------------------------------- -----------------------------------------------------------------
Stakeholder risk Link to 2021 scorecard - Leadership
--------------------------------------------------------------------------------------------------
Risk of disruption to business due
to inability to manage stakeholder
relations Risk owner: Rahul Dhir
------------------------------------------ ------------------------------------------------------
Risk details Risk mitigations
------------------------------------------ ------------------------------------------------------
The value of our assets and cash -- Well defined plan to engage proactively
flow generation may be eroded with all key stakeholders: all relevant
by unreasonable financial/fiscal stakeholders identified, and relationship
demands by host governments accountabilities defined
or actions that impair contract sanctity. -- Communication plan developed to
educate stakeholders on the broader
There is a risk of political interference impact of the Business Plan on the
in our operations that may impact nation.
our ability to award contracts to -- Reliance on robust stabilisation
the appropriate service providers. clauses in all our Petroleum Agreements.
Inability to manage relations with -- Tax advice obtained
key ministries, regulators and the
wider community could result in delays
in relevant approvals and
community ill will.
------------------------------------------ ------------------------------------------------------
Climate change risk Link to 2021 scorecard - Sustainability
----------------------------------------------------------------------------------------------------------------------
Risk of failure to manage impact
of climate change Risk owner: Julia Ross
-------------------------------------------------------- ------------------------------------------------------------
Risk details Risk mitigations
-------------------------------------------------------- ------------------------------------------------------------
The climate agenda is an increasing -- Cross-functional team established
area of focus globally, to identify opportunities to reduce
particularly for Tullow as we evolve carbon emissions across our operations
the business and work towards and/or investment in nature-based
improving our approach to environmental carbon removal projects to offset
impact. emissions impact
-- 2030 Net Zero (Scope 1 & 2) commitment
Failure to manage the impact of climate and pathway identified to decarbonise
change arising from evolving our Ghana assets
policies and increased volatility -- Long term gas offtake options
and downside risk in oil prices could support elimination of flaring
affect the commerciality of our portfolio, -- Enhanced understanding of climate
lead to loss of licence to related financial risks including
operate and result in limited access TCFD climate disclosure in our Annual
to/increased cost of capital. Report
* There may be challenges to delivering a suitable -- Stress test the portfolio to ensure
strategy to address climate change due to limited its resilience to IEA's
resources available * Sustainable Development scenario
-------------------------------------------------------- ------------------------------------------------------------
EHS or security risk Link to scorecard - Safety, Production and Business
Plan Implementation
----------------------------------------------------------------------------------------------------------------------
Risk of asset integrity breach or
major production failure Risk owner: Wissam Al-Monthiry
----------------------------------------------------------- ---------------------------------------------------------
Risk details Risk mitigations
----------------------------------------------------------- ---------------------------------------------------------
The nature of our operations will -- Asset and well integrity and maintenance
always have an inherent risk of a programmes with regular internal
major incident resulting in fatalities, verification and external assurance
loss of production, and/or -- Independently Verified Safety
extensive damage to facilities, the Case Document establishing quantitative
environment or communities. risk estimate assuming effective
The nature of our business at the systems and risk tolerance thresholds
moment means that we are reliant -- FPSO periodic planned shutdowns
on several key operated assets as to carry out required
well as our non-operated and * inspection, maintenance, repair and modificat
exploration portfolio. ion work
* A large gas release/asset integrity breach due to a
topside event resulting in a Major Accident Event may
occur, which may lead to injury to personnel, a -- Inherently Safer Design principles
prolonged production outage and potential significant application in engineering modifications
environmental damage -- Assurance and Compliance management
including Class
-- Increased level of assurance activity
on the FPSO with Tullow Offshore
field managers undertaking significant
assurance activities offshore
-- Comprehensive all-risk insurance
in place
----------------------------------------------------------- ---------------------------------------------------------
Financial risk Link to 2021 scorecard - Financial Performance and Capital
Structure
--------------------------------------------------------------------------------------------------------------
Risk of insufficient liquidity and
funding capacity Risk owner: Les Wood
----------------------------------------------------------- -------------------------------------------------
Risk details Risk mitigations
----------------------------------------------------------- -------------------------------------------------
Tullow remains exposed to erosion -- Range of high-quality assets that
of its balance sheet and revenues could be sold as part of portfolio
due to oil price volatility, unexpected management to unlock capital and
operational incidents, ongoing pay down debt
costs associated with the COVID-19 -- Leverage targets and minimum headroom
pandemic, failure to complete policy approved by the Board
portfolio options and inability to -- 2020 year-end undrawn facility
refinance. headroom and free cash of $1.1 billion
* Tullow may have difficulty securing a resolution of -- Dynamic working capital and cash
debt maturities due to failure to deliver its flow management including ability
Business Plan, which may lead to insufficient to flex capital investment
liquidity and potential impact on funding capacity -- Solid foundation to address debt
maturities
----------------------------------------------------------- -------------------------------------------------
Risk that we fail to deliver a sustainable
capital structure Risk owner: Les Wood
----------------------------------------------------------- -------------------------------------------------
Risk details Risk mitigations
----------------------------------------------------------- -------------------------------------------------
-- Plan to prioritise investments
* Tullow's ability to deliver the Business Plan is with high returns and short payback
dependent on developing a timely and sustainable -- Solid foundation to address debt
capital structure. maturities
-- RBL redetermination plan in place
-- Plan to drive gearing to 1x-2x
* Tullow may have challenges in the timely delivery of with appropriate liquidity headroom
a sustainable capital structure; this could impact
the ability to cover debt servicing costs over an
extended period or continued operations as the
capital structure is being implemented. Both
scenarios could potentially negatively impact the
ability to deliver the Business Plan.
----------------------------------------------------------- -------------------------------------------------
Organisation risk Link to 2021 scorecard - Business Plan Implementation
and Leadership
--------------------------------------------------------------------------------------------------------------------
Risk that the transformation plan
fails to support the strategy and
deliver cost savings Risk owner: Julia Ross
----------------------------------------------------------------- -------------------------------------------------
Risk details Risk mitigations
----------------------------------------------------------------- -------------------------------------------------
-- Transformation team established
* Tullow may be unable to maintain or improve which includes external advisors
operational performance and pursue growth if the -- Bottom-up review with external
Company is unable to evolve, maintain and sustain its consultant
organisational capabilities and deliver identified -- Transformation plan developed
cost savings and successfully fully implement its and key milestones identified and
planned transformational organisation change. tracked
-- Organisation restructured;
headcount
* The objectives/cost savings of the Transformation reduced by 53 per cent and
Project may not be achieved. This may result in a outsourcing
negative impact on cash flow and an organisation that of certain routine activities
is no longer fit-for-purpose from a cost perspective -- Cost-driven performance management
being implemented
----------------------------------------------------------------- -------------------------------------------------
Risk that the people strategy and
culture do not support the strategy Risk owner: Julia Ross
----------------------------------------------------------------- -------------------------------------------------
Risk details Risk mitigations
----------------------------------------------------------------- -------------------------------------------------
Tullow's success depends on the quality -- Revised Employee Value Proposition
of talent it can attract and (EVP) launched in 2020 aligning
retain and a strong ethically minded to restructured organisation
and performance-focused -- New approach to performance
culture. management
* Tullow may be unable to attract and retain suitably being implemented across the
experienced individuals which could lead to a lack of organisation
sufficient resource and capability to deliver core -- A renewed focus on Diversity
business activities. This may result in an inability and Inclusion
to meet strategic objectives and increased -- Review in progress to update
constraints on the capacity and moral of remaining succession plans for senior and
staff. critical roles
-- Focus on health and wellbeing;
rolling wellness programme
----------------------------------------------------------------- -------------------------------------------------
Conduct risk Link to scorecard - Business Plan Implementation and Leadership
----------------------------------------------------------------------------------------------------------------------
Risk of major compliance breach Risk owner: Mike Walsh
----------------------------------------------------------------- ---------------------------------------------------
Risk details Risk mitigations
----------------------------------------------------------------- ---------------------------------------------------
Tullow maintains high ethical standards -- Annual Code of Ethical Conduct
across the business without which staff eLearning and code certification
the company could be exposed to increased process
risk of non-compliance and bribery -- Third-party due diligence procedures
and corruption legislation or contractual and assurance processes in place
obligations along with other applicable -- Misconduct and loss reporting
business conduct requirements. standard and associated procedures
* In particular, an unforeseen material compliance in place
breach could lead to regulatory action, an unsettled -- Well established Anti-Bribery
litigation/dispute or additional failure litigation and Corruption governance
that may result in unplanned cash outflow, -- Process in place for GDPR
penalty/fines and a loss of stakeholder confidence in investigations
management. -- Anti-tax evasion risk assessment
undertaken with clear mitigation
actions identified
-- Recorded and investigated 52
concerns
raised, of which 50 cases are closed.
Appropriate actions have been taken
including employee dismissal (for
serious breaches).
----------------------------------------------------------------- ---------------------------------------------------
Cyber risk Link to 2021 scoreboard - Business Plan Implementation and
Leadership
----------------------------------------------------------------------------------------------------------------------
Risk of major cyber attack Risk owner: Mike Walsh
------------------------------------------------------------------ --------------------------------------------------
Risk details Risk mitigations
------------------------------------------------------------------ --------------------------------------------------
The external cyber threat environment -- Advanced security operations centre
is continuously evolving and in place providing 24/7 network and
intensifying; therefore, this is device monitoring
an ongoing risk that requires constant -- Security incident event management
monitoring and management. systems in place.
* Tullow may suffer an external cyber-attack which -- Security awareness programme in
could have far reaching consequences for the place
business. This could result in loss of sensitive -- Joint Tullow/MODEC industrial
personal or commercial data or allow external parties control system security programme
to limit our ability to operate, seize production or in place
potentially trigger a major incident -- Corporate security programme in
place
-- Annual mandatory security and
GDPR awareness training
-- Staff susceptibility to phishing
regularly tested
------------------------------------------------------------------ --------------------------------------------------
Viability statement
In accordance with the provisions of the UK Corporate Governance
Code, the Board has assessed the prospects and the viability of the
Group over a longer period than the 12 months required by the
'going concern' provision. The Board assesses the business over a
number of time horizons for different reasons, including the
following: Annual Corporate Budget (i.e. 2021), Two-year Forecast
(i.e. 2021-2022), Five-year Corporate Business Plan (i.e.
2021-2025), and Long-term Plan. The Board conducted the review for
the purposes of the Viability Statement over a three-year period.
The three-year period was selected for the following reasons:
i. in light of the current highly volatile market environment
the Group considers the Group's facility and free cash headroom,
debt: equity mix, and other financial ratios, over a three-year
period as opposed to the five-year Corporate Business Plan
period;
ii. the current contractual maturity of the Group's $300 million
Convertible Notes due in July 2021 and $650 million Senior Notes
due in April 2022 fall within a three-year period and as such the
three-year period is largely aligned with Tullow's funding cycle;
and
iii. this also aligns with the current transitional business
cycle with the significant projected increase in production and
operating cash flow generation in 2023 following a period of
significant capital investment in the Group's producing assets.
Notwithstanding this fact the Group will continue to monitor the
business over all time horizons noted above. As noted on pages 22
to 23 in the Group's going concern assessment, the Directors have
concluded that the uncertainties associated with implementing a
Refinancing Proposal and obtaining amendments or waivers in respect
of future forecast covenant breaches or, in the event a Refinancing
Proposal does complete, the revised covenants are subsequently
breached, are material uncertainties that may cast significant
doubt that the Group will be able to continue as a going
concern.
On a longer-term basis, when considering the Viability Statement
under the Base Case assumptions and a combination of reasonably
plausible low case scenarios over the three-year period, the same
uncertainties exist. However, the Base Case assumes that the
Group's Refinancing Proposal is successfully completed, and the
Group obtains amendments or waivers in respect of future forecast
covenant breaches or, in the event a Refinancing Proposal is
implemented, the Group obtains amendments or waivers in respect of
any breaches of revised covenants, which results in, the Group
forecasting liquidity headroom over the three-year period. The
Group has additional mitigating actions available to it should the
combination of reasonably plausible low case scenarios arise,
including reductions to capital investment, protection of oil price
volatility through hedging, further portfolio management and, if
required, raising additional capital. The Directors are committed
to delivering a refinancing proposal, and further mitigating
actions if a combination of reasonably plausible low case scenarios
arises, and they therefore believe that the Group continues to be
viable over the three-year assessment period.
Tullow has also assessed its viability in line with the IEA's
Sustainable Development Scenarios; see page 19 for details.
Principal risks* Base assumption Downside scenario
Strategy risks Production is assumed to 8 per cent reduction in production.
be in line with the Oil price: 2021: $45/bbl, 2022:
Business Plan. $47.5/bbl, 2023+: $50/bbl.
Oil price: 2021: $50/bbl,
2022: $55/bbl, 2023+: $55/bbl.
-------------------------------- ---------------------------------------
Stakeholder Associated with host government Exposure beyond the $87 million
risks stakeholders the Group has included in the Base
included $87 million outflow Case is either not anticipated
associated with tax exposures to occur within the three-year
(refer to page 107 to 108 assessment period or is not reasonably
for a description plausible to occur at all.
of the Group's uncertain
tax positions).
-------------------------------- ---------------------------------------
Climate change The key impact of climate In a downside scenario the Group
risk change on the Groups' portfolio has assumed a
of assets is reflected in reduction in the Base Case assumption
oil prices, which are assumed which is below
as: the current IEA SDS scenario of:
2021: $50/bbl, 2022: $55/bbl 2021: $45/bbl, 2022:
and 2023+: $55/bbl. $47.5/bbl, 2023+: $50/bbl.
-------------------------------- ---------------------------------------
EHS or security Production, operating costs 8 per cent reduction in production
risks and capital investment are
assumed to be in line with
the Business Plan.
-------------------------------- ---------------------------------------
Financial risks Contractual maturities of Contractual maturities of debt
debt instruments. However, instruments. However, the
the refinancing proposal refinancing proposal is assumed
is assumed as a mitigating as a mitigating action.
action.
-------------------------------- ---------------------------------------
* For detailed information on risk mitigation, assurance and
progress in 2020 refer to discussion of the detailed risks
above.
For Organisational Risk, Conduct Risk and Cyber Risk the Group
has assessed that there is no reasonably plausible scenario that
can be modelled in isolation or in combination with other risks
from a cash flow perspective.
Liquidity risk management and going concern
Assessment period and assumptions
The Group closely monitors and carefully manages its liquidity
risk. Cash flow forecasts are regularly updated, and sensitivities
run for different scenarios, including, but not limited to, changes
in commodity price and different forecasts for the Group's
producing assets. The Directors consider the Going Concern
assessment period to be 13 months to April 2022, thereby including
the maturity of the $650 million Senior Notes due in April 2022 in
the assessment. Management has applied the following oil price
assumptions for the Going Concern assessment:
-- Base Case: $50/bbl for 2021 and $55/bbl for 2022, and
-- Low Case: $45/bbl for 2021 and $50/bbl for 2022.
The Low Case includes, amongst other downside assumptions, an 8%
production decrease compared to the Base Case as well as deferred
receipts from portfolio management and increased outflows
associated with ongoing disputes. No mitigating actions have been
included in either case.
The Base Case and Low Case scenarios forecast sufficient
financial headroom for the 12 months from approval of the 2020
Annual Report and Accounts on 10 March 2021. However, both
scenarios forecast a liquidity shortfall in April 2022 following
the repayment of the $650 million Senior Notes due in April 2022,
which falls within the liquidity forecast test periods in respect
of the February 2021, September 2021 and March 2022 RBL
redeterminations. Both cases assume amendments or waivers are
received for any forecast Liquidity Forecast Test or gearing
covenant breach as described below.
Refinancing Proposal
The Base Case and Low Case scenarios forecast a liquidity
shortfall in April 2022, which could result in a failure to pass
the Liquidity Forecast Test, as described below, in respect of the
February 2021, September 2021 and March 2022 RBL redeterminations,
and the gearing covenant tests, as described below, in respect of
30 June 2021 and 31 December 2021. The Group's management has
therefore commenced discussions with its existing and potential new
creditors, the objective of which is to raise new funding and/or
agree certain amendments to the terms, including the covenants
and/or maturity dates, of some or all of the RBL Facility, the
Convertible Bonds, the 2022 Senior Notes and the 2025 Senior Notes
with, if necessary, such amendments being approved by shareholders
(Refinancing Proposal). Whilst the Directors believe that a
Refinancing Proposal would be in the commercial interests of all
stakeholders, there can be no certainty that the creditors and, if
necessary, shareholders will agree to a Refinancing Proposal,
implementation of which is therefore outside the control of the
Group.
Liquidity Forecast Test covenant compliance
As part of each RBL redetermination process the Group is
required to demonstrate to the reasonable satisfaction of the
relevant majority of its lenders under the RBL Facility that it
has, or will have, sufficient funds available to meet the Group's
financial commitments for a period of 18 months starting from the
first month immediately following the relevant RBL redetermination
(Liquidity Forecast Test).
On 26 February 2021 the Group submitted a Liquidity Forecast
Test to the lenders in respect of the February 2021 RBL
redetermination. The Directors concluded that the information
submitted to the lenders under the RBL Facility, which is different
from the Base Case and the Low Case scenarios described above and
includes mitigating actions, fulfilled the requirements of the
Liquidity Forecast Test. At the date of approving the 2020 Annual
Report and Accounts, an approval in respect of this test is yet to
be received, therefore a risk remains that the Group could fail
this test.
If the lenders under the RBL Facility were to conclude that the
information submitted does not fulfil the requirements of the
Liquidity Forecast Test and the Group was unable to cure the
resulting default by the end of April 2021, there would be an event
of default. Such event of default would allow the lenders under the
RBL Facility, at their discretion, to cancel the RBL Facility and
demand that all outstanding borrowings under the RBL Facility be
repaid and/or enforce their security rights. This would in turn
trigger other creditors' rights to call cross-defaults under the
other financing arrangements of the Group (namely the Convertible
Bonds, the 2022 Senior Notes and the 2025 Senior Notes) which could
result in the entirety of the Group's borrowings potentially
becoming immediately repayable by the end of April 2021. While
discussions in respect of a Refinancing Proposal are continuing the
Directors believe that, if required, a waiver of such a potential
event of default in respect of the Liquidity Forecast Test could be
agreed with the lenders under the RBL Facility.
The Group is also required to submit Liquidity Forecast Tests in
respect of the September 2021 and March 2022 RBL redeterminations.
The Base Case and Low Case scenarios forecast, before mitigations,
a potential liquidity shortfall and therefore a potential failure
of these tests. However, the Directors believe that a Refinancing
Proposal could be implemented in time for the September 2021 RBL
redetermination such that no shortfall will be forecast as part of
the Liquidity Forecast Tests in September 2021 and March 2022. If
no Refinancing Proposal has been implemented, and refinancing
discussions were no longer continuing, by September 2021 there
would be a significant risk of the Group entering into, or being
in, insolvency proceedings, the implications of which are described
in the section Implications and material uncertainties below.
Gearing covenant compliance
The RBL Facility contains a gearing covenant which is tested for
each 12-month period ending on 30 June and 31 December each year,
and which requires that net debt of the Group as defined in the RBL
Facility agreement is lower than 3.5 times consolidated EBITDAX
(earnings before interest tax, depreciation and exploration
write-offs) for each relevant 12-month period. Under both the Base
Case and the Low Case scenarios, the Group's gearing is forecast to
be in excess of the RBL gearing covenant when calculated at 30 June
2021 and 31 December 2021, the two testing dates falling within the
Going Concern assessment period.
The Group has requested an amendment in respect of these gearing
covenant testing dates as part of the Refinancing Proposal
described above. In the event that such amendments are not agreed
on time for the testing date falling on 30 June 2021, the Directors
would expect to request a waiver or amendment for that testing date
only in the first instance, and if needed for the testing date
falling on 31 December 2021 in the second half of the year. The
Directors believe that the Group would be able to secure such
amendments or waivers, which would be both consistent with past
practice and the Directors' reasonable expectation of the
commercial interests of the Group and its lenders.
If the Group is unable to agree an amendment or waiver of the
gearing covenant, if required, in respect of the 30 June 2021
testing date, the Directors will deliver to the relevant lenders a
notification of non-compliance, which is required to be delivered
as soon as the Group's unaudited financial statements for the half
year ended 30 June are available, but no later than 28 September
2021. If a subsequent 75-day period expires without the Company
having resolved the non-compliance there will be an event of
default under the RBL Facility by mid-December 2021.
Implications and material uncertainties
The Directors note that implementing a Refinancing Proposal or
obtaining amendments or waivers in respect of covenant breaches is
outside the control of the Group. If the Directors are unable to
implement a Refinancing Proposal or, if necessary, obtain
amendments or waivers in respect of covenant breaches, the ability
of the Group to continue trading would depend upon the Group being
able to negotiate a financial restructuring proposal with its
creditors and, if necessary, that proposal being approved by
shareholders. Whilst the Board would seek to negotiate such a
financial restructuring proposal with its creditors, there is no
certainty that the creditors would engage with the Board in those
circumstances. There would therefore be a significant risk of the
Group entering into insolvency proceedings, which the Directors
consider would likely result in limited or no value being returned
to shareholders.
The Directors have concluded that the uncertainties associated
with implementing a Refinancing Proposal and obtaining amendments
or waivers in respect of covenant breaches or, in the event a
Refinancing Proposal is implemented, the revised covenants are
subsequently breached, are material uncertainties that may cast
significant doubt that the Group will be able to continue as a
Going Concern. Notwithstanding these material uncertainties, the
Board's confidence in the Group's ability to implement a
Refinancing Proposal supports the preparation of the financial
statements on a Going Concern basis. The financial statements do
not include the adjustments that would result if the Group were
unable to continue as a Going Concern.
Appendix C: Related party transactions
The following related party transactions are extracted from the
Annual Report and Accounts (page 135).
The Directors of Tullow Oil plc are considered to be the only
key management personnel as defined by IAS 24 Related Party
Disclosures.
2020 2019
$m $m
------------------------------ ----- -----
Short term employee benefits 2.7 3.1
Post-employment benefits 0.2 0.5
Share-based payments 2.3 3.2
------------------------------ ----- -----
5.2 6.8
------------------------------ ----- -----
Short term employee benefits
These amounts comprise fees paid to the Directors in respect of
salary and benefits earned during the relevant financial year, plus
bonuses awarded for the year.
Post-employment benefits
These amounts comprise amounts paid into the pension schemes of
the Directors.
Share-based payments
This is the cost to the Group of Directors' participation in
share-based payment plans, as measured by the fair value of options
and shares granted, accounted for in accordance with IFRS 2
Share-based Payment.
There are no other related party transactions. Further details
regarding transactions with the Directors of Tullow Oil plc are
disclosed in the Remuneration Report on pages 57 to 73.
[END]
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